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Swedish proposal on how to distinguish employment relationship

February 2018


The Swedish Tax Agency recently presented a memorandum that proposed the introduction of the term ‘economic employer’ into Swedish tax legislation. The formal employer concept is proposed to be replaced by an ‘economic employer’– this will imply a change on how to distinguish an employment relationship when applying the Swedish, internal so-called 183 days rule as well as when interpreting the 183 days rule in tax treaties where Sweden is a contracting state.

As a result, for whom the work is performed will be decisive when determining if the 183 days rule is applicable and not which entity pays the salary. An employee employed by a foreign company without a permanent establishment in Sweden will likely be liable to tax in Sweden for employment income when work is physically performed for a principal in Sweden. Introducing the economic employer term as described below will generally mean that more foreign workers may be liable to tax in Sweden and a larger administrative burden is to be expected for companies sending employees to Sweden.

The takeaway

The Swedish government generally supports the STA proposal and has the intention to put a proposal to vote at the Swedish Parliament during 2018. Should the Swedish Parliament enact the proposal, the economic employer will be applicable as from the 1st of January 2019.

A larger, administrative burden is to be expected for companies sending employees to Sweden as well as for the employees. Companies currently applying the formal employment concept should make preparations before the transition to the economic employer term. PwC can assist your company with identifying appropriate measures.